Having left the EU, the UK is now free to design its own agricultural subsidy schemes to replace the EU’s Common Agricultural Policy (CAP), although key elements of the CAP-based system currently remain in place. In 2018, UK farmers received around £3.5 billion per year in CAP payments.[1]

How were agricultural subsidies allocated under the EU’s Common Agriculture Policy?

CAP payments fall under two pillars:

Pillar one – Direct Payments

These made up 80% of the UK’s 2018 CAP budget.[2] Farmers receive payments based on how much land they farm, although they are required to meet ‘greening’ requirements and may have their subsidy cut if they do not comply with environmental regulations. In the UK, direct payments are provided through the Basic Payment Scheme (BPS), administered by the UK government for England and devolved administrations in Scotland, Wales and Northern Ireland. Measures to support market prices also fall under pillar one.

Pillar two – Rural development payments

These made up 20% of the UK’s 2018 CAP budget.[3] This provides financial support to farmers and other rural businesses for delivering environmental benefits (such as preserving habitats and managing flood risks), improving farm efficiency (such as helping farmers use less feed and pesticides) and supporting rural development. In the UK, these payments are provided through multi-annual Rural Development Programmes, such as the Countryside Stewardship Scheme. 

Reliance on public subsidies varies between farmers. Between 2014/15 and 2016/17, direct payments (under pillar one) made up an average of 9% of farm revenue in England, although this figure is much higher for some sub-sectors, such as upland farms grazing livestock.[4]  

How were agricultural subsidies distributed within the UK?

Agricultural policy is devolved. When the UK was a member of the EU, the four governments were responsible for administering subsidies according to EU rules. Outside the EU, the different administrations can develop their own schemes.  

How will agricultural subsidies be allocated in England?

England has made the most progress in establishing a post-Brexit agricultural subsidy regime.

In 2018, Defra announced its intention to adopt the principle of ‘public money for public goods’, where farmers and other land managers will be paid for delivering environmental benefits rather than the amount of land they farm. The government argued that direct payments were a poor use of public money.

The Agriculture Act sets out a legislative framework for the new subsidy regime in England, including the list of ‘public goods’ for which subsidies may be paid. It received Royal Assent in November 2020. Shortly afterwards, Defra published an updated plan, The Path to Sustainable Farming: An Agricultural Transition Plan 2021 to 2024. Central to the new regime is the Environmental Land Management Scheme (ELMS).

The environment secretary has described the ELMS as the ‘main tool’ for delivering improvements to water quality and biodiversity, key elements of the government’s 25 Year Environment Plan.[5] The ELMS is also expected to support the government’s net zero ambitions, by helping to reduce agricultural greenhouse gas emissions, protecting and increasing carbon stores and supporting ecosystem resilience.

How will the Environmental Land Management Scheme (ELMS) work?

The ELMS has three components:

Sustainable Farming Incentive (SFI)

Farmers will be paid for taking actions above minimum legal requirements to promote wildlife diversity, use water efficiently, enhance hedgerows and manage croplands and grasslands, while continuing to use their land for production. A pilot scheme is due to launch in October 2021. Additional elements of the scheme will launch in 2022 and will initially only be open to current BPS recipients. All farmers will be eligible to apply once the scheme launches in full in 2024. 

Local Nature Recovery Program

This scheme will pay for actions that support natural recovery in local areas, such as creating, managing and restoring natural habitats. It will encourage coordination between different farmers. A pilot is due to start in 2022, before the programme is rolled out from 2023.

Landscape Recovery Scheme

This will support long-term changes to land use, such as large-scale tree planting and peatland restoration projects (which would involve either massive reductions to or complete cessation of farming on the affected land). It is likely that this scheme will only be open to large land owners. A national pilot will commence in 2022, before the program is rolled out from 2024.

 

The government expects that 70% of farmers will need to participate to ensure the ELMS delivers its goals. Several other schemes will also run alongside the ELMS, including initiatives to promote animal welfare, increase productivity through investment in new equipment and technology and improve tree health.  

The new regime will be introduced gradually over a seven year ‘agricultural transition period’ from 2021–2028. Over this period, components of the current subsidy regime will be phased out. The biggest change will be the gradual reduction of direct payments under the Basic Payment Scheme (BPS). This will occur in two stages:

Between 2021–2024, payments will be gradually reduced, with farmers who receive the most money facing the sharpest cuts (as shown in figure 1, below). Greening requirements have already been removed from the BPS.

From 2024, direct payments will be ‘delinked’, which will mean recipients will no longer need to farm the land to receive remaining BPS payments (thereby ending the payment of public subsidies specifically for farming land). This is designed to make remaining direct payments easier to administer and signal to farmers that this funding based on the area farmed is coming to an end.

Money saved from the reduction in BPS payments will be directed to the new support schemes.

An exit scheme is also being introduced, to encourage farmers who retire to make land available for new entrants or consolidation. They will be able to take their remaining direct payments as a lump sum, on condition they sell their land or surrender their tenancy.

Existing environmental schemes – like the Countryside Stewardship Scheme – will be closed to new entrants and participants ultimately moved to the ELMS. Transitional schemes – including the Farming in Protected Landscapes Scheme – have been established to reduce gaps in support during the transition period and accelerate the delivery of environmental benefits before the ELMS is fully operational.

Alongside the introduction of new schemes, the government intends to reform how subsidies are enforced – moving towards a model that relies more heavily on education and support rather than penalties.

How have the farming and environmental sectors reacted to the plans?

Farming and environmental groups are broadly supportive of the principle of public money for public goods. However, industry groups expressed concern that the government’s initial proposals neglected food production, did not give enough certainty over long-term funding, and would make it too difficult to receive support.

In response, the government amended the Agriculture Bill to refer to food production explicitly. It also introduced the Sustainable Farming Initiative (SFI), which will cover a broader range of basic environmental activities than originally envisaged. Some environmental groups think these concessions to farmers go too far, suggesting that the SFI is too light-touch, will not help farmers adjust to the principle of public money for public goods, and could lead to a regression to CAP-style direct payments.

How will agricultural subsidies be allocated in Wales?

In December 2020, the Welsh government published the Agriculture (Wales) White Paper. As in England, the concept of public money for public goods is described as being central to the new ‘Sustainable Land Management policy framework’.

The Welsh government has committed to continuing BPS payments for the duration of 2021 before introducing an agriculture bill in summer 2022. The Welsh government plans to re-design the EU’s pillar 2 payments to ensure they support the objectives of the Future Generations (Wales) Act 2015, but hasn’t published further details on reforms to pillar one CAP payments. The Farmers’ Union of Wales has voiced its concerns over the plans, arguing that they will not protect Welsh farming jobs and communities.[6]

How will agricultural subsidies be allocated in Scotland?

The Scottish government has committed to maintaining much of the CAP system up until 2024, when it plans to start a move to a new subsidy framework. In August 2020, the Scottish parliament passed the Agriculture (Retained EU Law and Data) (Scotland) Act, which gave ministers the power to alter the inherited CAP regime.

Several policy documents on Scotland’s future subsidy regime have been published but no final decisions have been taken. In May 2021, NFU Scotland called for a new payment scheme to be introduced from 2026, which would continue to provide direct support for farmers based on the area of land and number of animals they farm, but make more funding conditional on supporting the environment.[7]

How will agricultural subsidies be allocated in Northern Ireland?

The UK Agriculture Act 2020 contains measures to allow Northern Ireland’s Department of Agriculture, Environment and Rural Affairs to administer direct payments to farmers. These powers have been granted until 2022, when it is expected the Northern Ireland Assembly will legislate for a future agriculture policy framework. No details on this have yet been published.

Under the Northern Ireland Protocol, Northern Ireland is allowed to design its own agricultural subsidy programmes, but the total amount that can be spent each year is capped. The Joint Committee has agreed an initial ceiling of £382.2 million, which is broadly comparable with the amount Northern Ireland farmers received before Brexit.

How will the budget for agricultural subsidies be decided?

It is not yet clear how funding for agricultural subsidies will be allocated between the four nations beyond 2021, although more detail may be forthcoming in the Autumn 2021 Spending Review.

The government has committed to maintain current levels of spending on farm funding in England until the end of the current parliament, after which it is due to be determined as part of the spending review process (which typically happens every few years). The Agriculture Act requires the government to produce multi-annual financial assistance plans at least every five years, setting out how they plan to support farmers in England. However, this still provides less certainty over farming budgets than CAP’s seven-year budget.[8]

 

  1. House of Commons Library, Brexit next steps: Farm Funding in 2020, Insight, 29 January 2020, retrieved 27 August 2021, https://commonslibrary.parliament.uk/brexit-next-steps-farm-funding-in-2020/ 
  2. Department for the Environment, Food and Rural Affairs, Defra evidence and analysis paper no 7, Agriculture Bill: Analysis and Economic Rationales for Government Intervention, September 2018, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/740670/agri-bill-evidence-paper.pdf
  3. Ibid.  
  4. Ibid.
  5. House of Commons Environment, Food and Rural Affairs Committee, Oral evidence: Environmental land management and the agricultural transition, 20 July 2021, https://committees.parliament.uk/oralevidence/2620/pdf/
  6. James D, New Agricultural Bill for Wales to launch this autumn, Farmers Weekly, 7 July 2021, retrieved 31 August 2021, www.fwi.co.uk/news/farm-policy/new-agriculture-bill-for-wales-to-launch-this-autumn
  7. NFU Scotland, The Transition to Future (Conditional) Agricultural Support, NFU Scotland’s Approach, May 2021 www.nfus.org.uk/userfiles/images/Policy/0521%20NFUS%20Proposals%20For%20Future%20(Conditional)%20Support.pdf
  8. House of Commons Library, Briefing Paper: Agriculture Act 2020, 3 December 2020, https://researchbriefings.files.parliament.uk/documents/CBP-8702/CBP-8702.pdf
Update date: 
Thursday, September 2, 2021

Original source – The Institute for Government

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